IFN - Risk adversity rising

A recent large-scale Swiss Re study has revealed that Asia Pacific’s generation X and Y of 20-40 year olds have become increasingly risk averse and have indicated that they have been less willing to take risks over the past two years. Concern over rising medical bills and longevity risks are therefore fuelling a rising trend for the need for greater insurance coverage and financial planning.

The survey aimed to identify changes in consumer risk attitudes, comparing them to the results of an inaugural study conducted during the global financial crisis in 2009, using the Swiss Re consumer appetite for risk index (CAFRI).

Malaysia saw a slight decrease in its CAFRI rating, with its index values amongst the regions lowest at 38.4 in 2011. The higher the index value, the more willing consumers are to take risks, and vice versa.

The study highlighted a growing trend in the need for insurance and financial planning, fuelled by worries about medical expenses and the risks associated with increasing longevity. Also noted was that perceived cost remained the greatest barrier in buying insurance.

On the Takaful market, the study noted that only a small portion of Muslim respondents in Malaysia and Indonesia have bought Islamic insurance products or Takaful. It cited that an overwhelming majority of the respondents either do not know or have limited knowledge of these products, further indicating that greater consumer education is clearly needed.

These findings may come as a surprise to the industry as life insurance and Family Takaful policies across the region are regarded as being increasingly accessible and are in general relatively affordable, and suggest that insurance and Takaful operators still have much to do in changing consumer perceptions. Clarence Wong, the chief economist for Asia at Swiss Re, indicated that: “More education is needed to ensure consumers understand the value of protection insurance against the price they pay.”

For the Asia-Pacific insurance industry, the 20-40 year old age bracket are not only the future buyers of insurance, but also represent tremendous business opportunities now. This is especially true in the case of Malaysia, where the 15 – 64 year old age bracket accounts for 65.4% of the population, with the median age standing at around 28.6 years.

The survey also turned up a few surprises, suggesting that respondents from developed markets tend to be more willing than their emerging market peers to take risks, due to the availability of better social security systems.

The study shows that around 40% of respondents across the region say their families would or might struggle financially in case of early death, major serious illness or disability in the family.

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